What the Nasdaq Composite index is
What the Nasdaq Composite index is can be stated in one line: it is a market capitalization weighted benchmark that tracks nearly every common stock traded on the Nasdaq Stock Market. It launched on February 5, 1971, with a base value of 100. The timing matters. The index was built to describe a young electronic exchange, and only years later did investors begin treating it as a technology gauge.
More than 3,000 securities sit in the composite today. Ordinary shares, American Depositary Receipts, and tracking stocks are eligible. Preferred shares, exchange traded funds, closed end funds, and warrants stay out.
From 100 points to an era defining benchmark
Nasdaq opened in 1971 as the first fully electronic stock market in the United States, and the composite started at 100. It crossed 1,000 in July 1995 during the internet build out, then peaked above 5,000 in March 2000. The next two years erased most of that gain. The index bottomed near 1,114 in October 2002, roughly 78 percent below its high, and did not close above 5,000 again until 2015.
How the index is calculated
The level equals the market value of all constituents divided by a divisor, then scaled to the base. That divisor is not fixed. It changes with listings, delistings, and share counts, which keeps the published level continuous from one session to the next.
Nasdaq uses a modified capitalization method. Large companies carry the most weight, yet the process is not the pure float weighting applied by the S&P 500. Special rebalances allow Nasdaq to cap extreme concentration. One ran in 2023 to cut the share of a handful of megacaps that had grown to dominate the total.
Why a few names drive the headline number
The top ten members often represent 40 percent or more of index value. Apple, Microsoft, Nvidia, Amazon, Alphabet, Meta Platforms, Broadcom, and Tesla appear on that list frequently. A rough rule follows. When those stocks move together, the composite moves with them, regardless of what the other 3,000 securities do.
Sector composition
Weights drift with prices and new listings, so precise figures change week to week. The table below shows the usual ranges.
| Sector | Approximate weight | Notable members |
|---|---|---|
| Information technology | 50 to 60 percent | Apple, Microsoft, Nvidia, Broadcom |
| Communication services | 12 to 16 percent | Alphabet, Meta Platforms, Netflix |
| Consumer discretionary | 10 to 14 percent | Amazon, Tesla, Costco |
| Health care | 5 to 8 percent | Amgen, Gilead Sciences, Vertex |
| Financials and industrials | 8 to 12 percent | PayPal, Honeywell, CSX |
| Other sectors | 4 to 8 percent | Utilities, energy, materials, staples |
Technology and communication services together usually exceed two thirds of the index. That tilt explains most of the difference in behavior against broader benchmarks.
How it differs from the S&P 500 and the Dow
The Dow Jones Industrial Average holds 30 companies and weights them by share price, an oddity inherited from 1896 arithmetic. The S&P 500 applies float adjusted weighting and requires positive earnings, among other screens. The Nasdaq Composite screens far less, so unprofitable growth companies can stay in it. That raises both the upside and the drawdown potential.
A side by side review of Nasdaq versus S&P 500 returns across a full cycle shows how much sector mix explains the gap. In years when large technology stocks lead, the composite usually wins. In value driven years, the broader index often holds up better.
How the index is maintained
Routine work rather than editorial judgment keeps the roster current. Five steps cover most of it.
- A security must be listed on the Nasdaq Stock Market, or dual listed with Nasdaq as a primary venue.
- Common stock, ordinary shares of foreign issuers, ADRs, and tracking stocks qualify.
- ETFs, closed end funds, preferred shares, rights, and warrants are excluded.
- Most eligible issues join automatically, without a committee vote.
- Periodic reviews and occasional special rebalances reset weights and correct concentration.
Volatility, drawdowns, and recovery
Returns have been uneven. The composite fell about 55 percent from late 2007 to March 2009, then gained for most of the following decade. In 2022 it dropped roughly 33 percent, hurt by rising interest rates and lower valuations for unprofitable companies. The next year it rose more than 40 percent. Sharp swings cut both ways.
Dividends matter less here than in the broad market. Nasdaq publishes price and total return versions of the index, so the distinction between the two is easy to track.
Tools tied to the index
Exposure exists, though the choices are narrower than many assume.
- The index quote is published under the ticker ^IXIC and updates throughout the session.
- One US listed ETF tracks the composite directly, the Fidelity Nasdaq Composite Index ETF, with an expense ratio near 0.2 percent.
- The far larger Invesco QQQ follows the Nasdaq-100, a subset of 100 non financial companies, not the full composite.
- Futures and options trade mainly on the Nasdaq-100, so hedging the composite itself is less straightforward.
FAQ
Is the Nasdaq Composite only technology stocks?
No. It includes health care, financials, consumer names, and industrials. Technology dominates by market value, and that shapes the index reputation.
What does the index level actually mean?
It is a ratio, not a price. The figure measures total constituent value against a divisor and the 1971 base of 100.
Does the index include dividends?
Nasdaq publishes price and total return versions. Headline quotes exclude dividends, while total return figures assume they are reinvested.
How does it differ from the Nasdaq-100?
The Nasdaq-100 holds 100 of the largest non financial companies on the exchange. The composite holds thousands of securities, so smaller and more speculative names carry weight too.
Can an investor buy the index itself?
No. Indexes are calculations. Investors use funds or derivatives that aim to match index returns before fees and tracking differences.
